What is an economic benefit? Definition and examples
An economic benefit is any benefit that we can quantify in terms of the money that it generates. Net income and revenues, for example, are forms of economic benefit. Profit and net cash flow are also economic benefits.
An economic benefit may also refer to a reduction in something such as a cost. For example, lower raw material or labor costs are economic benefits. In this context, ‘labor‘ refers to the ‘workforce.’
InvestorWords.com has the following definition of the term:
“A benefit that can be expressed numerically as an amount of money that will be saved or generated as the result of an action.”
“Making a business case for a new strategy or product idea usually involves pointing out the economic benefits of the proposal to decision makers.”
When company directors are looking at a proposal, they carefully consider its economic benefits. If the proposer did not include the benefits in the proposal, the directors are much less likely to approve it.
Explaining what the economic benefits are helps them determine whether the proposal should go ahead.
However, if a proposal’s economic benefit is less than the potential harms, the decision-makers may turn it down.
Economic benefit or harm?
For example, let’s suppose that a lawnmower’s silencer represents 25% of its production cost.
Not fitting the silencer would save a lot of money, i.e., it would represent a significant economic benefit.
However, consumers are willing to pay more for less noise. Removing the silencer could, in fact, result in economic harm rather than benefit if sales plummeted.
Economic benefit decisions
Many different types of decision-makers consider economic benefits. A business person’s economic benefits are not the same as those for policymakers.
A business person uses measures such as ret cash flow, net income, or profits. Policymakers, on the other hand, will probably use producer and consumer surplus measures.
Economic benefit of infrastructure investment
Investing in a country’s infrastructure has considerable economic benefits, both in the short- and long-term.
Infrastructure refers to all the structures and systems which we take for granted such as roads, bridges, and tunnels. Power generation, airports, telephone lines, and railway lines are also infrastructure items.
In a 2011 report, by the Executive Office of the President, the authors explained that evidence of these benefits was evident in many infrastructure projects. The US President in 2011 was Barack Obama.
The authors mentioned that the upgrading of four major bridges reduced congestion costs by $100 billion.
Regarding investing in infrastructure, the authors wrote:
“The U.S. economy relies heavily on transportation infrastructure, and these investments to improve the condition and performance of our infrastructure allow people and goods to move more efficiently and safely around the country.”